IN MY VIEW….
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Why Brexit is no threat to the UK MI industry
By John Booth – Ex-Managing Director, Roland (UK) Ltd and Director of Roland Corporation, Japan
Let’s all calm down, shall we?
After the EU referendum, one would think that WWIII and Armageddon had actually arrived, listening to some ex-colleagues in the business, reading social media, blogs and of course, watching and listening to the BBC and Channel 4. It hasn’t. Sure, the Pound has fallen (it falls and rises, all the time, remember) and we’ll look at that in a moment. Shares dropped, briefly and then returned. All the dire warnings from the Government, the EU, the ‘Remain’ camp and all the ‘experts’ e.g. IMF, CBI, BoE and ten Nobel-prize winning economists turned out to be wrong.
Yes, business, including MI will be affected by Brexit – when it happens. But the MI Industry will deal with it like we have dealt with other ‘disruptions’ in the past. But why so much nervousness and negativity right now? It is illogical. Brexit hasn’t happened yet. Article 50 hasn’t been triggered yet. Why do so many people and the Mainstream Media (MSM) keep using the word Brexit as if we’d already left the EU? Why are so many people wailing and gnashing their teeth and holding their head in their hands?
Public discourse post-Brexit is dominated by feelings of frustration and betrayal, ‘I-told-you-so’ and this has been stirred up in the main by the MSM (in particular the BBC) who will stop at nothing to try and reverse the EU referendum vote. It is, of course outrageous but it is there for all to see. We just have to stop believing it and reacting to it.
Consequently, the expected market turbulence which followed the referendum result has been viewed as disastrous, rather than a market correction. It is not disastrous. It IS a market correction. We have been here before, so let’s take a look at recent history:
At time of writing the main Exchange Rates are shown compared to a few years ago:
|£/€||1.19||1.02||(Jan 2009 – June 2010)||+16.6%|
So, today we have a stronger pound v the Euro and the Japanese Yen and it is only 5% down against the US Dollar than 6 years ago. Hardly a ‘disaster’ scenario. Only importing in US Dollars is more costly now than 6 years ago. Importing in Euros and JPY is more favourable than 6 years ago. Suppliers and retailers dealt with it then and will be able to deal with it now.
As I recall, most distributors took the long view, absorbed the extra cost of importing their products and in the main, trade prices and in turn retail prices did not rise significantly or at all. This is a prime responsibility of distributors to maintain stability of prices and therefore confidence both from retailers and consumers. Of course, whenever the pound rises it is true distributors don’t always pass on all or any reductions and make a bit of extra profit for a while. This is precisely so that when the pound falls they don’t do the opposite.
As for retailers, the UK has a temporary advantage with the drop in the £/€ rate as European based retailers now face a worse exchange rate and will have to sacrifice profit or raise prices. In the other direction it is the opposite of course, but last time I checked, European MI imports into the UK were much bigger than UK MI exports into Europe.
Sterling will settle down eventually. It always does.
Today the FTSE 250 is at 17,051, well above the February low of 15,178 recorded before the referendum when the City anticipated an ‘R’ vote, and above the August 2015 low of 16,214.
The FTSE 100 is at 6,705 well above the pre-vote February low of 5,708 and the last significant low of 5,040 in mid-August 2011.
Similarly, Stock Markets in America, EMEA and Asia Pacific all show increases over the last month straddling the referendum.
- Brexit has not caused a sharp slowdown in business activity, the Bank of England has said in its July report on business conditions.
- Data from the Office for National Statistics showed UK unemployment fell below 5% in March to May, which is the lowest rate since 2005.
- The IMF’s recent pronouncements:
May: “BREXIT is going to be pretty bad to very, very bad.”
June: “the reaction is expected to be negative and could be severe.”
Today: “financial markets have proven resilient in the weeks after the referendum. The reaction has been orderly and contained.”
The IMF have changed their tune, haven’t they?
There has not been the ‘disastrous market turbulence’ widely predicted.
The short-term turbulence is overdone, as Lord King the former Governor of the Bank of England has already suggested. Uncertainty will continue: it will take some time before the progress of the economy post-Brexit becomes clearer.
But the main point is other than the currency and share price drops (which change all the time) nothing much has or will change in the medium term to the economy in general, wages, inflation and our way of life.
It will not happen for at least 2 years. Regarding the negotiations for trade, we should offer no new tariffs or barriers on the EU exports to us. We could comply with all their rules and regulations when selling things to them, as they are in those cases the customers. In turn they should offer us no new tariffs and barriers on our exports to them.
If they perversely want to place barriers and tariffs they are limited to an average tariff of around 3.5% by WTO rules. Half of WTO trade is tariff-free. Business and farmers on the continent will be lobbying strenuously against any such stupid action.
WE CARRY ON. Nothing has changed. We are still EU citizens, in the single market, with the same rights as before with full access, paying our subscription and receiving our agricultural support, regional fund, and joint research payments and that will be the case until somewhere around September 2018. Over the next 2 years we will have time to absorb and make sense of any changes to legislation, VAT, tariffs, freedom of movement and labour costs etc.
In my opinion there are two main reasons for the emotional response to the referendum result, resulting in an illogical nervousness and negativity:
- The decision of the electorate was a shock. The UK Treasury had no plan B, most City institutions, the UK Government and the EU as a whole did not expect the result and neither did the ‘Remain’ camp. Why was it so widely expected that ‘Remain’ would win? Well, that is beyond the remit of this opinion piece but if asked I’m happy to give my personal views as to the reason at another time. But it was a shock and is still reverberating and unfortunately, some people cannot or will not accept it and move on.
- Ignore the siren voices and the continuous ‘re-run’ of the referendum and the over-the-top ‘analysis’ and debate programmes on TV about the consequences of Brexit. It is, frankly, propaganda. All it boils down to is adjusting to a change in exchange rates and the only thing worse than 6 years ago is the Pound Sterling 5% lower against the US Dollar. Put the emotional responses to one side. Right now, the MI Industry is dealing with a market correction. It is not Armageddon. We have been here before.
Brexit is no danger for the MI Industry. Why not celebrate for these reasons:
- The EU strangles the UK with regulations and ‘red tape’. Over time, all our business, including MI will benefit from fewer regulations.
- We will leave the Single Market (hopefully). We are meant to operate as one. Basically, it only works if all countries are identical and work as a hive. But the UK economy is stronger than most in EU except Germany.
- The Euro is a disaster and will need deeper or even complete fiscal integration between nation states. This will be easier with the UK (outside the Euro) not part of the EU.
- We will save our EU budget contributions. The £8 – £10 billion a year (no, it’s not £350 million per week) can be spent how our Government decides on our internal priorities.
- We will make our own laws again. Our courts will have the final say over those laws.
- The EU wants to ‘harmonise’ VAT. We will control our own tax rates after Brexit.
- We will leave European Arrest Warrant.
- The EU threatens British sovereignty. The UK is not a true democracy inside the EU. We will be an independent country again. (maybe more on this in another article….)
- And some more frivolous reasons:
- Our own entry lanes at airports (easier arriving back from NAMM!)
- It will be easier to get rid of fridges (no more Directive 2012/19/EU – WEEE)
- We could get rid of windfarms which are a EU directive.
- Proper lightbulbs again
- British MEPs would be sacked
The views expressed in Music Instrument News’s In My View feature are the author’s own and not necessarily shared by the Editor, the proprietor or other contributors. Readers wanting to express their own opinions about aspects of the MI industry are welcome to contact firstname.lastname@example.org.